Thoughts on Dave Ramsey

[cashisking500]

Hello!

Just curious on everyone's thoughts on Dave Ramsey overall? Personally, there are some things I agree with and others that I do not....

- 12% rate of return - Dave bases all of his investing advice/projections on this number. Seems unrealistic to me for many reasons.

- No credit cards - Dave preaches don't ever have a credit card. Claims all you need is a debit card. I'm not sure I agree with this. A credit card, paid in full every month that it's used can provide you things such as rewards/points and flexibility with your cash flow.

- No Debt - This part I agree with. It's great to not have debt (I'm almost there except for my house), although a little debt here or there doesn't stress me out too much.

- Baby Steps - Dave is always touting the baby steps as the way to get out of debt and be smarter with your money. I agree with most of them, although I DO NOT agree with draining your E-Fund to 1k to pay down debt. Maybe it's just me, but that seems like a recipe for disaster!

What do you think on the items I listed above?

[Jluke]

On credit cards:
I use a rewards card for almost every single purchase - pay in full at the end of the month

On Debt:
Yes, unmanaged debt is bad. 0% debt can be a tool to leverage your buying power and not drain your savings. I could pay off all my debt, but then I'd be left with a small amount in savings account and a lot of cash tied up in the house, car, etc.

Homes: 30-year mortgages will kill you in interest paid. a shorter term mortgage (15, 20Y) or at minimum making extra payments on the 30-year is the way to go. All depends on your financial picture - some can't accomplish this and that is ok.

[corn18]

12% rate of return - if he would publish how he does this for real, I would jump on it in a heartbeat. I think it is unrealistic and even damaging to assume a 12% RoR when making retirement calculations/decisions. I use 7% to decide when I can retire. If I used 12%, I could retire 4 years earlier. While appealing, it is unrealistic and could lead to me running out of money in retirement.

- No credit cards - I would say yes if you don't have the discipline to pay them off each month. And I would guess most people that follow Dave Ramsey do so because they have credit card debt and want to get out of credit card debt. They probably should stop using credit cards altogether, at least for a while. For me, I would not give up my 2% rewards card. I can't make that with a CD or savings. So far, I have gotten over $1,300 in cash back this year. Why pass on free money?

- No Debt - Agree. Certain types of debt are fine if you are leveraging someone else's money.

- Baby Steps - Don't know what these are.

[Singuy]

About no CC

The little things in life(like a cup of coffee or paying tolls) is what really gets a person. Going on the cash method when you have very little earning potential is a good idea. It really gets the individual to ration daily expenditures more precisely than being on a CC.

Of course CC with 2% cash back is awesome but only if you can sit around manually calculating your daily expenses nightly.

If you are not on a tight budget than CC is the way to go.

[disneysteve]

If you are not on a tight budget than CC is the way to go.

I don't think it matters if your budget is tight or not. What matters is your own personal level of control.

Let's say your budget for groceries is $100 this week. You go to the store and put no more than $100 worth of groceries in your cart. When you get to the register, it makes no difference if you pay with cash, debit, check, or credit. $100 is $100.

The problem arises with people who look at a credit card as a license to spend money they don't have and can't afford. If you actually have a budget and are following it, the method of payment is irrelevant.

[disneysteve]

- No Debt - This part I agree with. It's great to not have debt (I'm almost there except for my house), although a little debt here or there doesn't stress me out too much.

The problem is making debt a black and white issue when it just isn't. It depends on the reason for the debt and, most importantly, it depends on the interest rate on the debt.

Right now, I have a 2.99% loan on my wife's van. I have around $100,000 in a non-retirement mutual fund account. Dave Ramsey would say I should pull money out and pay off the van. However, that mutual fund has a 5-year average annual return of 15.82%, more than 5 times what the loan is costing me. Why would I possibly do that?

The answer, to be fair to Dave Ramsey, is that his system isn't based on math. It's based on behavior. He says that very clearly. He knows that his system won't save or earn you the most money. His goal is to get you out of debt, and I think he does that very effectively. The people who turn to his plan are drowning in debt and need to find a way out. Focusing on saving a few dollars or earning a little extra on investments isn't what those people need, at least not in the short term.

[tripods68]

Hello!

Just curious on everyone's thoughts on Dave Ramsey overall? Personally, there are some things I agree with and others that I do not....

- 12% rate of return - Dave bases all of his investing advice/projections on this number. Seems unrealistic to me for many reasons.

- No credit cards - Dave preaches don't ever have a credit card. Claims all you need is a debit card. I'm not sure I agree with this. A credit card, paid in full every month that it's used can provide you things such as rewards/points and flexibility with your cash flow.

- No Debt - This part I agree with. It's great to not have debt (I'm almost there except for my house), although a little debt here or there doesn't stress me out too much.

- Baby Steps - Dave is always touting the baby steps as the way to get out of debt and be smarter with your money. I agree with most of them, although I DO NOT agree with draining your E-Fund to 1k to pay down debt. Maybe it's just me, but that seems like a recipe for disaster!

What do you think on the items I listed above?

We used Dave Ramsey's method to get out of DEBT using Baby Step and sticking to our monthly budget. We are debt free, except our mortgage.

Credit Card - All cut off except one (Costco card AMEX membership). But we stop using credit card all together. We only use cash and will never be using credit card again.
Those who used credit card on regular basis, 64% of the people don't pay their balance at the end of the month.

Investment return - If you keep your retirement always diversified (stock, balance fund, international, foreign) you will earn significant return long term.

We are in Baby Step 4, 5, 6, 7 (maximizing our retirement contributions to 15%, savings 529 plan, saving to pay for next vehicle all cash, and paying down early our mortgage). We have built 6 months of EF (25K) which is baby step 3.

You have to be committed 100% to make this work. Its not for everybody. But it works for us.

[disneysteve]

12% rate of return - if he would publish how he does this for real, I would jump on it in a heartbeat.

I definitely don't think anyone should plan based on 12%, but at the same time, 12% funds are out there. I own a couple of them.

[pflyers85]

As far as the credit cards go you have to consider the bulk of his audience. They are people that made a financial mess and have the self control of adolescents when it comes to managing money. For these people, credit cards are a huge disservice. Rather than say credit cards are ok for responsible consumers it is probably better for him to just downplay it across the board so he doesn't risk sending mixed messages to his audience. There aren't going to be many people that will honestly evaluate their spending habits. So if he says using a CC is ok if you are responsible, many of his audience will automatically lump themselves into the responsible category even though they are far from it.

I also tend to think $1K is a little too low for an emergency fund but it certainly is better than nothing. Perhaps years ago when goods/services cost less $1K was adequate. However, today there are many emergencies that can easily wipe out $1K in one shot. Car takes a dump, kid needs braces, roof needs repair, etc. I agree with the principle of getting out of debt ASAP but if you don't have an adequate Efund its very easy to get right back to square one or go even further in the hole.

[disneysteve]

As far as the credit cards go you have to consider the bulk of his audience... So if he says using a CC is ok if you are responsible, many of his audience will automatically lump themselves into the responsible category even though they are far from it.

Agreed. He knows his target audience. They are folks who shouldn't be using credit cards, certainly not at this stage of their lives. Maybe down the road when they clean up the mess but not before then, and possibly not even then.

I also tend to think $1K is a little too low for an emergency fund but it certainly is better than nothing.

I agree. He's been teaching the 1K EF for as long as he's been doing this. It probably should be increased but, as you said, it's a lot better than nothing, which is what all of these folks have before they start the plan. For many, 1K is the most savings they've ever had which is a huge accomplishment.

[pflyers85]

Agreed. He knows his target audience. They are folks who shouldn't be using credit cards, certainly not at this stage of their lives. Maybe down the road when they clean up the mess but not before then, and possibly not even then.


I agree. He's been teaching the 1K EF for as long as he's been doing this. It probably should be increased but, as you said, it's a lot better than nothing, which is what all of these folks have before they start the plan. For many, 1K is the most savings they've ever had which is a huge accomplishment.

Yep I will admit during college and into my early 20's I racked up a lot of CC debt and spent irresponsibly. At age 25 I cut up all my CC's and focused on eliminating my debt and living within a budget. I just turned 30 and started using a CC for the first time in 5 years. I needed that time to educate myself to see where my money was going and get a financial game plan before I could trust myself to use CC's again. Ramsey wasn't the reason I decided to make these changes but he has definitely helped motivate me along the way.

[dojo]

I read his book and loved it. I cannot invest in the US (not a citizen) and our 'market' here is not as mature as I'd like it, so the investment options right now are zero for me. I might disagree with some of his ideas, but overall he makes a lot of sense. His book really inspired me to take my money more seriously and make some changes that would help us long term.

[disneysteve]

I might disagree with some of his ideas, but overall he makes a lot of sense. His book really inspired me to take my money more seriously and make some changes that would help us long term.

I think this is the best kind of endorsement. No matter which financial "guru" you read or listen to, what matters isn't if you follow their advice word for word. What matters is if hearing the info spurs you to take action and improve your situation.

I have yet to find a financial celebrity - Dave Ramsey, Suze Orman, David Bach, etc. - with whom I agree 100%. But that doesn't stop me from watching, reading, and listening to them as there are often good tidbits to extract from their information.

[SavingSteve]

I think this is the best kind of endorsement. No matter which financial "guru" you read or listen to, what matters isn't if you follow their advice word for word. What matters is if hearing the info spurs you to take action and improve your situation.

I have yet to find a financial celebrity - Dave Ramsey, Suze Orman, David Bach, etc. - with whom I agree 100%. But that doesn't stop me from watching, reading, and listening to them as there are often good tidbits to extract from their information.

This is a great point. When you learn from multiple people you have the opportunity to create your own path to success. Dave Ramsey does have a great method to offer for paying off nasty high interest debt. I've been using it for the past 18 months and paid off $18K from 2 credit cards and totally changed my attitude about cards in general. I still use those two cards but never carry a balance and only use a tiny amount that I'm able to handle.

Right now, I have a 2.99% loan on my wife's van. I have around $100,000 in a non-retirement mutual fund account. Dave Ramsey would say I should pull money out and pay off the van. However, that mutual fund has a 5-year average annual return of 15.82%, more than 5 times what the loan is costing me. Why would I possibly do that?

The answer, to be fair to Dave Ramsey, is that his system isn't based on math. It's based on behavior. He says that very clearly. He knows that his system won't save or earn you the most money. His goal is to get you out of debt, and I think he does that very effectively. The people who turn to his plan are drowning in debt and need to find a way out. Focusing on saving a few dollars or earning a little extra on investments isn't what those people need, at least not in the short term.

Yes and changing your behavior is really the key to STAYING out of debt once you pay it off. DisneySteve, your behavior is not a problem so you are not putting yourself at risk by making an intelligent decision to carry the van debt instead of raiding your mutual fund. In fact you have been a great inspiration to many of us here. But perhaps you may agree with other things Ramsey says and find it useful in some way.

Ramsey's most valuable offering is to provide a system to get out of debt and stay there, when it may seem like there is no hope. I've been there. It has been really great and inspired me to learn more and totally change my behavior.

[Eagle]

12% rate of return - if he would publish how he does this for real, I would jump on it in a heartbeat. I think it is unrealistic and even damaging to assume a 12% RoR when making retirement calculations/decisions. I use 7% to decide when I can retire. If I used 12%, I could retire 4 years earlier. While appealing, it is unrealistic and could lead to me running out of money in retirement.

- No credit cards - I would say yes if you don't have the discipline to pay them off each month. And I would guess most people that follow Dave Ramsey do so because they have credit card debt and want to get out of credit card debt. They probably should stop using credit cards altogether, at least for a while. For me, I would not give up my 2% rewards card. I can't make that with a CD or savings. So far, I have gotten over $1,300 in cash back this year. Why pass on free money?

- No Debt - Agree. Certain types of debt are fine if you are leveraging someone else's money.

- Baby Steps - Don't know what these are.

Here's the 7 baby steps:

Baby Step 1 $1000 Emergency Fund
Baby Step 2 Pay of debt with Debt Snowball (Lowest balance first)
Baby Step 3 Save 3-6 months Fully Funded Emergency Fund
Baby Step 4 Save 15% of income in Roth IRA & Pre-Tax Retirement Plans
Baby Step 5 Save for Kids College
Baby Step 6 Pay Off Mortgage Early
Baby Step 7 Build Wealth & Give